Reference no: EM13844913

1. Suppose that the aggregate demand and aggregate supply schedules for a hypothetical economy are as shown below:

Amount of Real GDP Demanded (Billions)	Price Level  (Price Index)	Amount of Real GDP Supplied (Billions)
$100	300	$450
200	250	400
300	200	200
500	100	100

a. Use the data above to graph the aggregate demand and aggregate supply curves.

Instructions:

1. Use the line tools "AD" and "AS" to draw the aggregate demand (plot 5 points total) and aggregate supply curves (plot 5 points total) given in the table above. To earn full credit for this graph, you must plot all required points for each curve.

2. Use the drop line tool called "Eq" to indicate the equilibrium price level and the equilibrium level of real output.

What is the equilibrium price level and the equilibrium level of real output in this hypothetical economy?

Equilibrium price level =......

 Equilibrium level of real output =......billion

Is the equilibrium real output also necessarily the full-employment real output? .....

b. If the price level in this economy is 150, will quantity demanded equal, exceed, or fall short of quantity supplied?

By what amount? ..........

 

if the price level is 250, will quantity demanded equal, exceed, or fall short of quantity supplied? .......

By what amount? ......... billion

c. Suppose that buyers desire to purchase $200 billion of extra real output at each price level.

What Is the new equilibrium price level and level of real output?

The new equilibrium price level =..........

 The new level of real output = ........... billion

 

Refer to the data in the table given below. Suppose that the present equilibrium price level and level of real GDP are 100 and $225. And that data set B represents the relevant aggregate supply schedule for the economy.

(A)		(B)		(C)
Price Level	Real GDP	Price Level	Real GDP	Price Level	Real GDP
110	275	100	200	110	225
100	250	100	225	100	225
95	225	100	250	95	225
90	200	100	175	90	225

 

a. What must be the current amount of real output demanded at the 100 price level?

 Real output demanded = ......

 b. If the amount of output demanded declines by $25 at the 100 price level shown In B. what will be the new equilibrium real GDP?

The new equilibrium level of real GDP =..........

In business cycle terminology, what would economists call this change in real GDP?

 

3. Refer to the table below

Real Output Demanded (Billions)	Price Level	Real Output Supplied (Billions)
$506	105	$513
508	104	512
510	100	510
512	96	507
514	92	502

What is the equilibrium level of output? ........ billion

What Is the equilibrium price level? $ ...............

3. Suppose that aggregate demand increases such that the amount of real output demanded rises by $7 billion at each price level. Add the new values for real output demanded to the table below.

Real Output Demanded (Billions)	New Real Output Demanded	Price Level	Real Output (Billions)
$506	513	108	513
508	515	104	512
510	517	100	510
512	519	96	507
514	521	92	502

What is the new equilibrium level of output? .......... billion

What Is the new equilibrium price level?..................

By what percentage will the price level increase?..........

4. Assume that, without taxes, the consumption schedule for an economy is shown in the first two columns of the table below. The MPC without taxes is 0.8.

Suppose a proportional tax with a 10 percent tax rate is imposed instead of the regressive tax. Calculate the new consumption schedule and note the MPC (tax inclusive) and the multiplier.

Instructions: Enter only whole numbers for your answers.

GDP, (Billions)	Consumption Before Tax (Billions)	Tax Rate	Disposable Income,( Billions)	Consumption $ After Tax, (Billions)
$100	$120	10%	90
200	200	10%	180
300	280	10%	270
400	360	10%	360
500	440	10%	450
600	520	10%	540
700	600	10%	630

Instructions: Round your answers to two decimal places.

MPC for the proportional tax consumption schedule = ........

The multiplier for the proportional tax consumption schedule...........